With the realisation that Nigeria’s GDP is far ahead of what was previously thought, Africa’s most populous nation has recently become its biggest economy. What’s arguably more important, however, is that investors, both international and local, are capitalising on a number of new opportunities, and, bolstered by a growing non-oil sector, the country is fast-becoming a leading investment destination. World Finance spoke to Nicholas Nyamali, CEO and Managing Director of Investment One Financial Services, about the major ways in which the nation has changed, and what lies in store in the months and years ahead.

How has Nigeria grown to become Africa’s largest economy?
Primarily supported by its position as the largest producer of crude oil in Africa, Nigeria’s GDP has grown to be the biggest in Africa. The rebased GDP figures that place Nigeria as the largest African economy serves as an affirmation of the country’s economic size and value. Previous computations of the national output last carried out in 1990 had understated the contributions of a number of sectors, and the rebased figures showed a move from $96.9bn to $510bn.

In addition, relative to inflows in other African nations, the significant foreign capital investments made by supranationals and multinationals have also served as catalysts for the growth story of Nigeria.

The Nigerian economy has witnessed an impressive rise in its growth numbers, particularly after rebasing its GDP

Which industries have driven this growth?
Following the rebasing of the GDP, the contribution of services doubled to 51.86 percent, which represents the highest sectorial contributor, whereas agriculture and industries contribute 23.33 percent and 24.81 percent respectively.

The increased contribution of the services sector to GDP was partly due to the rise in the telecoms sub-sector to nine percent of GDP, coupled with the addition of a new sub-sector, ‘motion picture, sound recording and music presentation’ (known as Nollywood), which now accounts for 1.4 percent of the rebased GDP.

Other constituents of the services sub-sector include trade (8.91 percent), IT (5.96 percent), real estate (4.13 percent) and financial institutions (1.24 percent) – and contributions from crop production (11.65 percent), mining and quarrying (8.45 percent) and manufacturing (3.58 percent); as the primary drivers of the country’s economic growth.

What potential for investment is there for fund managers in Africa?
Pockets of opportunity present attractive investment prospects for fund managers; ranging from private equity to fixed income and equities securities. In the fixed-income market, bond yields mostly trade at a considerable discount to par with coupons for benchmark bonds yields, and present attractive returns in the treasury bills market. In the equities market, on the back of sustained economic growth rates at a five percent average, despite slowing global growth and threats of deflation in the eurozone and Japan, African markets appear preferable.

We expect the trend of reforms in key sectors across nations and development of necessary infrastructure to continue to drive economic growth internally. Global investment and equity firms have made large investments in Africa, which showed the assets met the requirements of the world’s top investors. In West Africa, more than 84 percent of the funds that invested in bi-global funds over the past 10 years were made in the past two.

There is greater political risk for particular sectors such as energy or resources; where having a local partner is critical. Stemming from the efforts channelled towards becoming the leading investment management firm in market insight, product innovation and service delivery in Nigeria, Investment One is on the path to becoming the preferred choice of investors seeking a partner in Africa to help them achieve their investment plans. Investing in companies operating within the continent portends a chance to partake of their expected earnings growth.

Which industries are seeing the most interest from investors?
As one of the top three destinations for Foreign Direct Investment (FDI) in Africa, Nigeria has seen investment flows in the power sector. In addition, the banking sector has also witnessed investment flows, given the recent M&A and capital raising activities currently in the sector, which has raised investors’ confidence. Other areas attracting foreign investments include real estate, agriculture and telecoms.

How are businesses using the investment they’re receiving?
Many businesses are using the investment received for capital expansion, process optimisation and, where possible, in backward integration. For example, the recent investments by Investment Corp in Dubai put through the purchase of a $300m stake in Dangote Cement, where the funds are to be deployed in expanding business operations. Loans worth $1.5bn and $2bn from the African Development Bank and World Bank respectively have been channelled into the Nigerian economy.

A number of grants from the World Bank have been provided to support the on-going electricity reforms, while the likes of Total Upstream and Shell recently announced investments in ramping up gas production. The banks are also on-lending debt investments received from issued Eurobonds.

In what ways is the emerging middle class changing the economy of Nigeria?
Nigeria’s emerging middle class has witnessed decent growth over the years, prompted a transformation in the economy as disposable income increased. Business demand has also grown to meet the needs of new consumers, and there’s greater demand for luxury goods, investments, banking services and electronic commerce.

The middle-class population has also prompted differentiated products and increased their availability. Investment One is strategically positioned to provide investment management services to this emerging middle-class group as a result of its focus – channelling adequate manpower and technology – on retail investment products and services. Its products are avenues for this middle class population to channel their disposable income, as the firm urges those in the retail segment to set aside their savings by investing today to secure tomorrow.

What are they investing in?
The average middle-class individual has a higher consumption pattern and thirst for novel products and services. Whereas the purchasing power (or disposable income) of the middle class in Nigeria can be observed from spending on discretionary goods instead of consumer staples, there is an increasing appetite for investments in technology, business start-ups and real estate.

Since the 2008 stock market meltdown, interests in equity investments have been low and are yet to recover. Investment One is committed to investment education to inculcate an investment culture among the average Nigerian, who like many, is naturally inclined to consume. This investment education drive disseminates information freely to Nigerians through various methods, including free seminars and workshops, provision of resource materials on the web and through short messaging services.

How aspirational is Nigeria’s middle class?
The emerging Nigerian middle class is ambitious; more enlightened and earn higher incomes than that of the previous generation. This can be seen in the rise and success of several start-up companies, the foray of the middle class into diverse business lines across sectors and their pursuit of better education. This middle class is expected to serve as a driving force to the consumer goods sector over the next decade and herald a change in general commerce from traditional retail to e-markets. Investment One sees strong growth in Nigeria’s middle class, and it is positioned to adequately service this sector when it hits full potential.

What else needs to be done to ensure Nigeria remains the region’s largest economy?
It is imperative that the government improves security and governance. It also has to intensify its efforts to diversify the economy and reduce its dependence on revenue from crude oil exports. Recent reforms and continued investments in the power sector, as well as the gas–to-power project of the government would enhance the ease of business and reduce operating costs, thereby boosting economic growth. This will be supported by the expected positive outcomes from the Agricultural Transformation Agenda, and increased investment in infrastructure. Also, the recent disbursement of $1.2bn to Micro, Small and Medium Enterprises Development Fund (MSMEDF) by the Federal Government to address the financing needs and increasing credit flows to the SMEs, particularly at single digit interest rates – if properly utilised – should trigger business growth in the real sector.

How do you see Nigeria’s economy progressing further in the coming months and years?
The Nigerian economy has witnessed an impressive rise in its growth numbers, particularly after rebasing its GDP (see Fig. 1). However, the recent decline in oil prices threatens to dampen the nation’s oil-based earnings, which account for a significant share of Nigeria’s foreign exchange inflows. Nonetheless, we’ve seen recent improvements in the non-oil sector, particularly in agriculture, trade and services, and it has been observed that the impressive economic performance of the nation in recent times is underpinned by improvements in the non-oil sector.

Going forward, we believe there are prospects for continuous economic growth despite near-term headwinds of declining oil prices and insecurity issues, supported by continuous investments in the power sector along with infrastructure, recent reforms by the Federal Government aimed at developing the non-oil sector, as well as expected positive outcomes from the Agricultural Transformation Agenda. With these factors, Nigeria remains the best investment destination in Africa.